Ethereum price underperforms BTC on a number of metrics as investors await spot ETH ETF to start trading.

Ether $3,090 started the year strongly but began tapering off in mid-March. Although the ETH picked momentum in mid-May amid anticipation of the approval of spot Ethereum ETFs in the United States, it has underperformed Bitcoin

A new Digital Assets: Insights and Market Trends report, a joint publication from CME Group and Glassnode, reveals some of the reasons why ETH has been underperforming BTC throughout 2024, as discussed below.

Ether continues to trend lower against BTC in 2024

Data from Markets Pro and TradingView reveals that Ether has experienced relatively deeper corrections in 2024, with the largest drawdown being 31% between March 12 and May 1. In comparison, Bitcoin dropped by 23% over the same period.

Zooming out, the drawdown profile of Ether has experienced relatively deeper corrections compared to Bitcoin, with the largest drawdown in the 2022-24 cycle being -42% thus far. Previous cycles have seen corrections exceeding -65% during both the early and later phases of macro bull markets.

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The Glassnode-CME Group report also noted that the “ETH/BTC ratio has continued to decline” during the 2023-24 cycle, suggesting that the general investor risk appetite is still low for the current cycle.

According to the chart below, the ETH/BTC ratio has trended lower since the Merge, marking a period where Bitcoin outperforms Ethereum, a scenario that is still playing out at the moment.

The report records a number of reasons for Ether’s underperformance, including the approval of spot Bitcoin ETFs in the US in January 2024 and the increasing competition from other proof-of-stake blockchains.

“Nevertheless, with the inauguration of U.S. Spot ETFs for Ethereum, this may create a catalyst for a reversal in this downtrend.”

ETH Realized volatility in 2024 remains below previous cycles’

Using onchain metrics from market intelligence firm Glassnode, the report analyzed the Market Value Realized Value (MVRV) ratio to gauge the overall profitability of investors. The MVRV ratio tracks the divergence between the Market Cap and the Realized Cap and describes the average unrealized profit or loss held by the market.

The report noted that although this metric has improved steadily since October 2023, its current value of around 1.8 is still way below the 6.2 and 3.8 peaks witnessed during the 2017 and 2021 bull cycles.

In comparison, the report shows Bitcoin’s MVRV ratio at around 2.5, indicating that the average BTC investor holds larger unrealized profits than ETH investors.

This means that the investors still value BTC higher than ETH and that they would rather put their money in the pioneer cryptocurrency than in Ether.

This sentiment is shared by K33 Research, who noted that although ETH has mirrored BTC’s performance throughout the year, with the ETH/BTC ratio stubbornly trading near 3-year lows, the market has “under-appreciated Ether’s potential.”

K33 Research Senior analyst Vetle Lunde wrote,

“We believe the market underestimates the ETH ETF effect and forecast that US ETH ETFs will absorb 1% of the circulating ETH supply”.

Similar to Glassnode and CME Group, Lunde says he expects the “ETH ETF effect could lead to ETH outperformance in H2 2024.”

ETH futures trade volumes trail Bitcoin’s

According to the Glassnode and CME Group report, futures markets remain the primary source of trade volume in digital asset markets, generally being “five times to ten times larger in size than spot trading volumes.”

Although Ether’s open interest remains high in 2024, reaching an all-time high of $17.09 billion on May 29, as per Glassnode data, the derivatives trading volumes still remain significantly lower than those of Bitcoin.

High futures trading volumes indicate high investor confidence and enthusiasm, which could lead to more buying and higher prices.

The chart below reveals that trade volumes in futures markets have picked up since October 2023, with Bitcoin seeing over $34.4 billion in daily contracts traded against Ethereum’s $26.7 billion.

“Daily trade volumes of this magnitude are similar to the previous market cycle, although they remain below the all-time high peaks seen during the first half of 2021.”

Despite Ether’s underperformance vs. Bitcoin, analysts are optimistic that spot Ethereum ETFs will see ETH reach new highs, as some speculate that Wall Street will use it as a bet on Web3’s growth. Others speculate that the spot Ethereum ETFs could attract more than $15 billion during the initial months, propelling ETH price to $10,000 during this cycle.